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The  Interpretation  of  Ricardo. 


By  SIMON  N.  PATTEN. 


Reprinted  from  the  Quarterly  Journal  of  Economics  for  April,  1893. 


THE  INTERPRETATION  OF  RICARDO. 


Ever  since  the  death  of  Ricardo  there  has  been  an 
increasing  interest  in  him  and  his  writings.  For  all  de- 
ductive economists  his  theories  have  had  a charm  which 
those  of  no  later  writer  possess.  There  are  many  whose 
reasoning  is  more  perfect,  many  whose  ideas  are  more 
clearly  expressed ; but  few  have  attained  the  commanding 
position  of  Ricardo  in  economic  theory. 

On  the  other  hand,  among  a large  class  of  economists 
with  inductive  and  historical  tendencies,  any  doctrine  to 
which  Ricardo’s  name  is  attached  is  discredited,  and  often 
treated  with  contempt.  I have  no  desire  to  enter  this 
controversy,  which  must  rest  as  it  is  until  a new  spirit 
causes  men  to  interpret  the  history  of  economic  theory 
from  a new  standpoint.  I only  desire  to  discuss  the  inter- 
pretation of  Ricardo’s  writings  which  has  grown  up  among 
his  followers  and  disciples,  and  from  a position  friendly  to 
him  and  them.  Few  writers  have  a greater  interest  in 
deductive  economics  than  I,  and  no  one  would  be  less 
willing  to  say  anything  that  would  reflect  any  discredit 
or  lower  in  any  way  the  high  esteem  in  which  Ricardo  is 
held.  Yet  it  seems  to  me  that  his  friends  in  defending 
him  have  placed  him  in  a false  light,  and  have  distorted 
the  history  of  economic  theory.  Ricardo  is  too  great  a 
man  to  need  any  false  praise : his  merits  will  only  be  mag- 
nified if  he  is  placed  in  his  true  historical  position  as  an 
economist. 

Perhaps  I can  bring  forward  the  issue  I want  to  discuss 
no  better  than  by  asking  a question.  In  the  early  part  of 
the  year  1815  a remarkable  essay  by  Malthus  appeared, 
which  opened  up  the  discussion  of  the  theory  of  rent ; and 
a few  months  later  came  a still  more  remarkable  essay  by 


y 31550 


9 


Ricardo,  in  which  the  position  of  the  modern  economist 
was  clearly  represented.  There  is  a marked  difference  be- 
tween the  essay  of  Malthns  and  that  of  Ricardo.  The  char- 
acter of  the  change  which  Ricardo  brought  about  in 
economics  becomes  more  manifest  when  we  compare  the 
position  of  Malthus  with  that  taken  by  Ricardo  in  his  Polit- 
ical Economy , published  two  years  later.  How  are  we  to 
explain  the  difference  in  tone  between  the  essay  of  Mal- 
thus and  that  of  Ricardo,  and  more  especially  how  are  we 
to  account  for  the  sudden  appearance  of  a work  of  so  much 
importance  as  Ricardo’s  Political  Economy  ? It  might  be 
claimed  that,  upon  reading  the  essay  of  Malthus,  a new  the- 
ory of  political  economy  loomed  up  before  him,  as  a sudden 
inspiration,  so  to  speak.  But  such  radical  changes  in  the 
ideas  of  a mature  man  rarely  take  place.  It  is  true  that 
sometimes  one  man  gives  a new  impetus  to  the  thinking 
of  another,  as  is  shown  in  the  influence  of  Hume  on 
Kant ; yet  in  this  classic  example  it  took  years  for  Kant 
to  work  out  his  system,  while  Ricardo  seems  to  go 
through  his  evolution  of  thought  in  a few  months. 

Out  of  this  difficulty  there  is  a way  which  has  received 
much  favor  from  later  economists ; and  that  is  to  ignore 
Malthus’s  books  entirely,  and  to  treat  rent  and  other  doc- 
trines of  Ricardo  as  the  product  of  his  own  thinking.  In 
this  way,  however,  a great  injustice  is  done  Malthus,  and 
the  development  of  the  ideas  of  Ricardo  is  placed  in  a 
false  light.  We  are  not  called  upon  to  put  all  these  the- 
ories in  a bunch,  and  then  decide  whether  Malthus  or 
Ricardo  was  their  sole  discoverer.  The  works  of  these 
two  writers  are  distinct  and  supplementary.  Ricardo  did 
much  for  economic  theory,  but  it  was  different  from  what 
Malthus  did ; and  the  glory  of  the  former  is  reduced,  and 
not  increased,  by  ignoring  Malthus.  The  strength  of  each 
of  these  writers  lay  in  fields  where  the  other  was  weak. 

Let  us  go  back  therefore  to  the  beginning  of  the  period 
to  which  these  writers  belong,  and  try  to  place  each  in  his 


true  position  and  give  to  him  the  credit  to  which  he  is 
entitled. 

It  is  plain  that  both  these  writers  took  their  starting- 
point  in  economic  investigation  from  the  writings  of 
Adam  Smith.  The  Wealth  of  Nations  contains  the  ele- 
ments of  two  different  economies  or  modes  of  viewing 
economic  affairs.  But  they  are  blended  so  nicely  that 
their  lack  of  harmony  did  not  become  evident  until  a 
new  development  in  the  industrial  world  brought  new 
issues  to  the  front. 

The  older  economy  may  well  be  called  the  agricultural 
economy.  It  supposes  that  the  mass  of  the  people  resides 
in  the  country,  and  depends  upon  the  cultivation  of  the 
soil  for  a living.  Under  these  conditions  land  problems 
are  of  vital  importance  to  society,  and  the  surplus  from 
land  is  almost  the  sole  cause  of  social  progress.  So  small 
a use  is  made  of  capital  that  it  is  not  considered  of  enough 
importance  to  place  it  beside  land  and  labor  as  an  agent 
in  production  or  a factor  in  distribution.  The  loaning  of 
money  on  interest  is  looked  lipon  as  an  evil,  because  the 
borrower  usually  expends  the  money  received  on  luxuries, 
and  does  not  use  it  to  increase  the  productive  power  of 
society.  The  leading  contrast  in  the  sources  of  income 
lies  between  rent  and  wages : the  first  represents  the  sur- 
plus of  society ; the  second,  its  costs.  Prosperity,  there- 
fore,  depends  upon  the  increase  of  rent.  If  the  landlords 
are  prosperous,  society  is  prosperous,  because  the  surplus 
of  the  landlords  is  diffused  throughout  society,  and  creates 
its  prosperity.  These  ideas  were  developed  more  consist- 
ently by  the  Physiocrats  than  by  other  thinkers,  yet  the 
same  general  principles  lie  at  the  basis  of  all  the  earlier 
writers  who  think  of  society  as  made  up  of  agricultural 
communities. 

The  growth  of  cities  as  a result  of  the  industrial  devel- 
opment of  the  eighteenth  century  created  a new  way  of 
viewing  national  progress,  which  may  be  called  the  indus- 


4 


trial  economy.  The  rapid  increase  of  capital  is  the  lead- 
ing phenomenon  of  such  a society.  It  is  the  one  thing 
around  which  all  the  problems  of  city  life  cluster.  Build- 
ings, machinery,  raw  material,  finished  goods,  and  all  other 
necessaries  of  production  and  exchange  are  viewed  merely 
as  forms  of  capital;  and  the  dependence  of  production 
upon  nature  (the  leading  fact  of  a country  economy)  is 
overlooked  or  neglected.  Even  the  food  supply  is  con- 
sidered more  as  a product  of  saving  than  as  a product  of 
natural  forces. 

The  two  factors  of  production  thus  become  capital  and 
labor,  and  the  two  forms  of  income  are  profits  and  wages. 
Capital  takes  the  dominant  place  that  land  takes  in  the 
agricultural  economy,  and  the  surplus  of  society  becomes 
profits  instead  of  rent.  Wages  are  still  the  equivalent  of 
cost,  but  they  are  contrasted  with  profits  instead  of  with 
rent.  In  the  agricultural  economy  wages  fall  as  rents 
rise ; while  in  the  industrial  economy  wages  fall  as  profits 
rise,  and  the  opposite.  Just  as  in  the  agricultural  econ- 
omy the  prosperity  is  measured  by  the  prosperity  of  the 
landlords,  so  in  the  industrial  economy  prosperity  is  meas- 
ured by  the  condition  of  the  capitalists.  The  rate  of 
profits  becomes  the  criterion  of  prosperity  instead  of  the 
increase  of  rent. 

In  making  this  comparison,  I am  fully  aware  that  no 
writer  or  group  of  writers  has  made  use  of  all  these  prem- 
ises. I am  merely  making  use  of  elements  that  lay  at  the 
basis  of  their  mode  of  thinking,  and  were  but  partially 
incorporated  in  their  writings.  Each  writer  meant  to 
give  an  impartial  view  of  the  national  economy ; yet  his 
environment  and  education  colored  his  views,  and  created  a 
tendency  to  neglect  facts  that  did  not  harmonize  with  pre- 
conceived opinions.  Even  many  city  economists  viewed 
the  national  economy  from  a country  standpoint,  and 
failed  to  see  the  industrial  function  of  cities  or  of  capital 
in  modern  life. 


5 


As  long  as  the  national  economy  was  viewed  from 
either  of  these  standpoints,  the  theory  of  political  economy 
was  of  necessity  a theory  of  prosperity.  There  can  be  no 
proper  theory  of  distribution  until  the  disposition  of  some 
portion  of  the  surplus  income  of  society  is  undetermined. 
With  wages  at  a minimum,  and  all  the  surplus  of  society 
being  either  rent  or  profits,  no  law  of  distribution  was 
needed.  There  was  need  only  of  a measure  of  prosperity, 
and  this  measure  could  be  found  in  the  growth  of  rent  or 
of  profits.  It  is  true  that  in  these  earlier  societies  there 
were  rent,  profits,  and  wages ; but  so  long  as  the  country 
people  did  not  recognize  the  industrial  function  of  the 
city,  and  city  people  neglected  the  relation  between  their 
prosperity  and  that  of  the  country,  these  three  elements 
could  not  be  brought  into  vital  relation.  Country  people 
looked  upon  the  city  as  a place  to  spend  money.  The  ex- 
travagance of  court  circles  attracted  their  attention  more 
than  the  activity  of  city  artisans.  On  the  other  hand,  city 
people  knew  little  of  country  people  except  as  country 
gentlemen  and  other  landlords,  who  were  pictured  as  liv- 
ing upon  the  bounty  of  nature  rather  than  upon  the  fruits 
of  their  industry.  So  long  as  city  people  regarded  the 
wealth  of  the  nation  as  divided  among  artisans,  capitalists, 
and  country  gentlemen,  and  country  people  thought  the 
distribution  was  among  farmers,  land-owners,  and  city 
spendthrifts,  the  basis  of  a theory  of  distribution  was  lack- 
ing. It  was  only  possible  to  indicate  what  disposition  of 
the  surplus  was  for  the  best  interests  of  society ; and  of 
that  disposition  there  could  be  no  question,  either  in  the 
minds  of  the  city  or  of  the  country  people,  so  long  as  they 
viewed  production  in  so  partial  a manner. 

In  comparing  these  two  economies,  we  shall  find  the 
basis  of  the  differences  which  separated  Malthus  and 
Ricardo,  and  at  the  same  time  made  their  intercourse  with 
each  other  so  valuable  to  themselves  and  to  the  develop- 
ment of  economic  science. 


6 


Malthus  viewed  the  problems  of  prosperity  from  a rural 
point  of  view,  and  made  national  prosperity  to  be  the 
same  as  agricultural  prosperity.  The  index  of  country 
prosperity  he  found  in  the  amount  of  agricultural  rent, 
and  hence  assumed  that  the  increase  of  agricultural  rent 
was  the  measure  of  the  increase  of  national  prosperity. 
But  Ricardo  was  a man  of  another  type,  having  the  in- 
stincts and  education  which  a city  environment  alone  can 
give.  He  is  the  first  writer  to  take  the  industrial  phenom- 
ena of  city  life  and  to  create  an  economy  based  upon  those 
characteristics.  Land  problems  and  commercial  problems 
are  with  him  secondary,  and  are  not  considered  until  the 
elements  of  industrial  life  in  the  cities  have  been  arranged. 
With  earlier  writers  purely  industrial  phenomena  are  con- 
sidered merely  as  a modification  of  the  laws  of  trade  and 
agriculture.  With  Ricardo  the  order  is  reversed.  From 
industrial  facts  he  develops  his  fundamental  laws,  then 
bringing  the  laws  of  trade  and  agriculture  into  harmony 
with  them. 

Ricardo’s  thinking  on  economic  subjects  begins  with 
a study  of  the  conditions  which  determine  the  rate  of 
profits,  and  about  this  all  of  his  system  is  constructed. 
Adam  Smith  had  said  that  the  rate  of  profits  was  lowered 
by  the  competition  of  producers.  Ricardo,  who  had  been 
a close  follower  of  Smith,  differed  from  him  on  this  point, 
and  began  his  independent  thinking  by  controverting  this 
opinion.  He  showed  that  values  could  not  rise  or  fall 
as  a whole.  General  high  or  low  values  were  impossible, 
and  hence  the  fall  of  profits  must  have  some  other  cause 
than  increased  competition.  The  true  cause  he  fojind 
in  an  analysis  of  value.  He  saw  that  the  cost  of  produc- 
tion of  all  freely  produced  commodities  depends  solely 
upon  the  quantity  of  labor  required  to  obtain  them ; and, 
as  general  values  cannot  rise  or  fall,  the  rate  of  profits  is 
determined  by  the  cost  of  this  labor.  There  was  no  way 
through  which  an  employer  received  a compensation  for 


7 


a rise  in  wages;  and  there  could  be  but  one  result, — a 
fall  of  profits. 

High  wages,  however,  did  not  mean  to  Ricardo  a better^ 
condition  of  the  laborers.  He  was  a firm  believer  in  the 
law  of  population  developed  by  Malthus,  and  consequently 
regarded  high  wages  as  indicating  a higher  cost  of  the 
articles  which  the  laborer  consumed.  He  assumed  further 
that  the  consumption  of  the  laborers  was  mainly  food,  and 
hence  concluded  that  high  wages  indicated  a high  price  of 
food.  Profits  by  this  chain  of  reasoning  is  put  in  con- 
trast with  the  price  of  food.  Low  profits  mean  a high 
price  of  food,  and  high  profits  a low  price  of  food.  Thus 
Ricardo  reached  the  famous  contrast  that  lies  at  the  basis 
of  his  system.  He  seized  firmly  the  proposition  that  the 
rate  of  profits  depends  upon  the  price  of  food,  and  he 
never  lost  sight  of  it  through  all  of  his  subsequent  in- 
vestigation. 

Profits  were  falling  in  England  at  this  time,  and  the 
price  of  food  was  rising : the  latter,  therefore,  was  the 
cause  of  the  former.  This  high  price  of  food  was  due  to 
the  tariff  on  the  importation  of  food ; and  Ricardo  natu- 
rally became  a free  trader,  denouncing  the  Corn  Laws  as 
the  cause  of  the  low  rate  of  profits.  In  this  stage  of  his 
development  Ricardo  did  not  suppose  that  a high  price  of 
food  and  a low  rate  of  profits  were  a necessary  conse- 
quence of  industrial  progress.  His  conclusions  were  based 
on  the  concrete  industrial  condition  of  England  at  this 
time.  Free  trade  was  the  remedy  for  the  abnormally 
high  price  of  food  which  governmental  restriction  had 
caused.  Through  it  a higher  rate  of  profit  could  be  ob- 
tained, and  industrial  prosperity  restored. 

With  these  conclusions  Malthus  did  not  agree.  He 
looked  at  economic  problems  from  an  agricultural  point 
of  view,  and  thought  that  national  prosperity  depended 

E price  of  food.  Rent,  he  contended,  was  a 
iw  wealth,  and  not  a transfer  of  wealth  from 

i 


l 


8 


the  industrial  classes  to  the  landlords.  Ricardo,  however, 
regarded  rent  as  a creation  of  value  merely,  and  not  a 
creation  of  wealth.  The  rise  of  rent  indicated  a transfer 
of  the  surplus  of  society  from  producers  to  landlords,  and 
a fall  in  the  rate  of  profit.  What  was  once  profit  became 
rent  through  the  high  price  of  food. 

The  essay  of  Malthus  on  the  Nature  and  Progress  of 
Rent  was  the  outcome  of  this  controversy  about  the  Corn 
Laws.  He  desired  to  show  that  the  high  price  of  food 
was  not  due  to  the  Corn  Laws  or  to  monopoly,  but  was 
a natural  consequence  of  national  progress.  The  increase 
of  population  required  more  food,  and  more  food  could 
be  obtained  only  by  the  cultivation  of  poorer  land.  The 
high  cost  of  cultivating  these  poorer  lands  demanded  a 
high  price  of  food,  and  a nation  could  not  be  populous 
and  prosperous  without  such  an  increase  in  the  price  of 
food  as  would  allow  poor  lands  to  be  cultivated  with  the 
usual  rate  of  profit  to  farmers.  The  high  price  of  food 
was  therefore  the  result  of  an  increasing  population,  and 
not  of  the  Corn  Laws.  The  latter  strengthened  the 
motives  which  lead  farmers  to  improve  their  land,  and 
thus  created  the  fund  out  of  which  increased  rents  could 
be  paid.  Malthus,  therefore,  naturally  became  a protec- 
tionist, defending  the  Corn  Laws. 

This  essay  on  rent  did  not  have  the  effect  upon  Ricardo 
that  Malthus  anticipated.  Ricardo  saw  what  Malthus  did 
not  see, — that  the  new  theory  fitted  admirably  into 
Ricardo’s  system,  and  made  the  proof  of  his  theory  of  the 
relation  of  the  price  of  food  to  profits  more  perfect.  The 
law  of  rent  came  into  Ricardo’s  system,  not  as  a basis , but 
as  a better  proof  of  a theory  already  developed.  He  now 
saw  that  the  high  price  of  food  was  a natural  consequence 
of  industrial  progress.*  He  was  therefore  able  to  base  his 

*“  High  rents  and  low  profits  . . . ought  never  to  be  the  subject  of  com- 
plaint if  they  are  the  effect  of  the  natural  course  of  things.”  See  Ricardo’s 
Essay  on  the  Influence  of  a Low  Price  of  Corn  on  the  Profits  of  Stock,  p.  20. 


9 


theory  that  profits  fell  as  the  price  of  food  rose  on  a gen- 
eral law  of  nature,  and  not  on  a specific  study  of  English 
conditions.  Instead  of  drawing  the  particular  conclusion 
that  the  Corn  Laws  raised  the  price  of  food  in  England, 
and  thus  reduced  the  rate  of  profit,  he  could  appeal  to  a 
line  of  argument  that  would  prove  deductively  the  well- 
known  historical  fact  that  the  rate  of  profit  fell  with  every 
increase  of  national  prosperity. 

The  discovery  of  the  cause  of  rent  was  the  begin- 
ning of  a new  epoch  in  the  development  of  economic 
theory,  for  it  turned  the  attention  of  economists  from  the 
theory  of  prosperity  and  the  disposition  of  the  surplus 
of  society  to  theories  of  value  and  distribution.  While, 
however,  an  impetus  to  these  new  studies  was  given  by  the 
writings  of  Malthus  and  Ricardo,  it  is  a serious  mistake 
to  assume  that  their  interest  centred  in  the  theory  of  dis- 
tribution instead  of  the  theory  of  prosperity.  So  much 
emphasis  has  been  given  to  the  theory  of  distribution  by 
recent  economists  that  they  are  apt  to  read  into  the  writ- 
ings of  the  earlier  economists  opinions  which  would  im- 
pute to  them  the  ideas  of  a period  later  than  that  in 
which  they  lived.  The  theory  of  distribution  could  not 
be  developed  until  some  laws  were  formulated,  fixing  the 
size  of  the  funds  distributed  as  rent,  profits,  and  wages.* 
Nor  could  the  theory  of  value  assume  a prominent  place 
until  it  was  known  what  elements  did  and  what  did 
not  enter  into  the  cost  of  production  of  commodities. 
Neither  of  these  theories,  therefore,  could  be  discussed 
until  the  theory  of  rent  was  discovered.  When  the  con- 
cept of  marginal  cost  had  displaced  that  of  average  cost,  it 
became  possible  to  resolve  profits  into  a number  of  special 
costs  (risks,  abstinence,  etc.),  and  then  to  say  that  value 
equals  the  cost  of  production  instead  of  the  older  formula 
that  cost  is  proportional  to  value. 

* All  theories  of  distribution  are  dependent  upon  some  theory  of  value  to 
fix  the  size  of  the  funds  to  be  distributed. 


10 


The  theory  of  prosperity  contrasts  only  cost  with  sur- 
plus, and  does  not  need  any  theory  of  value  for  its  dis- 
cussion. The  theory  of  cost  of  the  earlier  writers  was 
simple,  because  they  assumed  that  the  laborers  received 
none  of  the  surplus,  and  that  all  the  consumption  of  the 
laborers  was  in  the  form  of  food,  which  included  clothing 
and  shelter.  The  surplus  was  therefore  the  difference  be- 
tween the  cost  of  food  and  the  value  of  the  whole  produce 
of  industry. 

As  later  writers  have  analyzed  profits  and  interest  into 
a species  of  cost,  it  may  be  well  to  show  that  the  older 
economists  regarded  them  as  a part  of  the  surplus.  In 
this  way  it  can  be  shown  that  the  older  economists  viewed 
political  economy  primarily  as  a theory  of  prosperity. 

The  profits  of  stock,  it  may  perhaps  be  thought,  are  only  a different 
name  for  the  wages  of  a particular  sort  of  labor, — the  labor  of  inspec- 
tion and  direction.  They  are,  however,  altogether  different,  are 
regulated  by  quite  different  principles,  and  bear  no  proportion  to  the 
quantity,  the  hardship,  or  the  ingenuity  of  this  supposed  labor  of 
inspection. — Wealth  of  Nations,  Book  I.  chap.  vi. 

Like  the  rent  of  land,  it  [interest]  is  a net  produce  which  remains 
after  completely  compensating  the  whole  risk  and  trouble  of  employ- 
ing the  stock. — Ibid.,  Book  T.  chap.  ii.  Article  II. 

The  more  general  surplus  here  alluded  to  is  meant  to  include  the 
profits  of  the  farmer  as  well  as  the  rent  of  the  landlord,  and  there- 
fore includes  the  whole  fund  for  the  support  of  those  who  are  not 
directly  employed  on  the  land.  Profits  are,  in  reality,  a surplus,  as 
they  are  in  no  respect  proportioned  to  the  wants  and  necessities  of  the 
owners  of  capital. — Malthus,  Inquiry  into  the  Nature  of  Rent,  p.  16,  note. 

Provided  its  net  real  income,  its  rent  and  profits,  be  the  same,  it  is 
of  no  importance  whether  the  nation  consists  of  ten  or  of  twelve 
millions  of  inhabitants. — Ricardo,  Political  Economy,  chap.  xxvi. 

On  these  points  there  were  no  differences  of  opinion : the 
dispute  related  to  the  disposition  of  the  surplus, — whether 
it  was  better  for  society  that  the  surplus  should  be  rent 
or  profits.  Adam  Smith  and  Malthus  held  that  high  rent 
was  the  measure  of  social  progress,  while  Ricardo  main- 


11 


tained  that  high  profits  was  the  true  measure.  To  con- 
trast these  two  opposing  positions,  it  may  be  well  to  quote 
from  these  writers. 

Every  increase  of  the  real  wealth  of  society  [says  Smith],  every 
increase  in  the  quantity  of  useful  labor  employed  within  it,  tends  in- 
directly to  raise  the  real  rent  of  land.  ... 

These  are  the  three  great  original  and  constituent  orders  of  every 
civilized  society,  from  whose  revenue  that  of  every  other  order  is 
ultimately  derived.  The  interest  of  the  first  of  those  great  orders 
[landlords]  it  appears  from  what  has  been  just  now  said  is  strictly 
and  inseparably  connected  with  the  general  interest  of  the  society. 
Whatever  promotes  or  obstructs  the  one  necessarily  promotes  or 
obstructs  the  other.  When  the  public  deliberates  concerning  any 
regulation  of  commerce  or  police,  the  proprietors  of  land  never  can 
mislead  it,  with  the  view  to  promote  the  interest  of  their  own  particu- 
lar order,  at  least  if  they  saw  any  tolerable  knowledge  of  that 
interest.  . . . 

But  the  rate  of  profit  does  not,  like  rent  and  wages,  rise  with 
the  prosperity  and  fall  with  the  declension  of  the  society.  On  the 
contrary,  it  is  naturally  low  in  rich  countries  and  high  in  poor  coun- 
tries ; and  it  is  always  highest  in  the  countries  which  are  going  fastest 
to  ruin.  . . . The  proposal  of  any  new  law  or  regulation  of  commerce 
which  comes  from  this  order  [employers  of  labor]  ought  always  to  be 
listened  to  with  great  precaution,  and  ought  never  to  be  adopted  till 
after  having  been  long  and  carefully  examined,  not  only  with  the 
most  scrupulous  but  with  the  most  suspicious  attention.  It  comes 
from  an  order  of  men  whose  interest  is  never  exactly  the  same  with 
that  of  the  public,  who  generally  have  an  interest  to  deceive  and  even 
to  oppress  the  public,  and  who  accordingly  have,  upon  many  occasions, 
both  deceived  and  oppressed  it. — Wealth  of  Nations,  Book  I.,  con- 
clusion of  the  last  chapter. 

Rents  [says  Malthus]  are  neither  a mere  nominal  value  nor  a 
value  unnecessarily  and  injuriously  transferred  from  one  set  of  people 
to  another,  but  a most  real  and  essential  part  of  the  whole  value  of 
the  national  property,  and  placed  by  the  laws  of  nature  where  they 
are,  on  the  land,  by  whomsoever  possessed,  whether  the  landlord,  the 
crown,  or  the  actual  cultivator. — Malthus,  Inquiry  into  the  Nature  of 
Rent,  p.  20. 

It  is  not,  of  course,  meant  to  be  asserted  that  the  high  price  of 
raw  produce  is,  separately  taken,  advantageous  to  the  consumer,  but 
that  it  is  the  necessary  concomitant  of  superior  and  increasing  wealth, 
and  that  one  of  them  cannot  be  had  without  the  other. — Ibid.,  p.  47. 


It  is  easy  to  find  other  statements  of  this  character  in 
both  these  writers,  but  enough  has  been  presented  to  show 
the  defective  analysis  they  make  of  the  causes  of  national 
prosperity.  The  industrial  function  of  city  producers  was 
not  understood ; while  high  profits  were  regarded  as  com- 
ing from  illegitimate  sources,  and  not  due  to  an  increase 
of  productive  power.  To  break  the  force  of  such  ideas,  it 
was  not  a new  theory  of  distribution  that  was  needed,  but 
a new  analysis  of  production,  and  of  the  causes  of  prosper- 
ity. The  place  of  city  people  in  production  must  be  made 
clear,  and  the  causes  of  high  rents  properly  analyzed.  In 
short,  the  fact  demanded  emphasis  that  the  increase  of 
prosperity  depended  more  upon  industrial  than  upon  agri- 
cultural conditions,  and,  further,  that  the  increase  of 
wealth  was  due  to  high  profits,  and  not  to  high  rents. 

Ricardo  was  the  first  economist  to  view  economic  rela- 
tions solely  from  an  industrial  or  city  point  of  view,  and 
hence  from  the  start  he  consciously  puts  himself  in  oppo- 
sition to  the  theory  of  prosperity  held  by  Smith  and 
Malthus.  He  did  not  need  a formulation  of  the  law  of 
rent  to  arouse  him  in  an  economic  world,  dominated  by 
the  ideas  of  these  writers.  It  was  the  cause  of  rent  and 
profits  that  first  interested  him,  and  not  the  law  of  their 
distribution.  His  letters  to  Malthus  show  clearly  that  the 
relation  of  the  price  of  food  to  the  profits  of  stock  was  one 
of  the  first  subjects  to  which  his  attention  was  directed. 

If  by  adopting  such  policy  [Corn  Laws]  a country  were  to  enhance 
the  value  of  the  raw  materials  which  it  consumes,  of  which  corn  is 
the  principal,  it  would  thereby  lower  the  rate  of  interest.  . . . This  is 
a repetition,  you  will  say,  of  the  old  story,  and  I might  have  spared 
you  the  trouble  of  reading  at  two  hundred  miles’  distance  what  I had 
so  often  stated  to  you  as  my  opinion  before ; but  you  have  set  me  off, 
and  must  now  abide  the  consequences.  I was  never  more  convinced 
of  any  proposition  in  political  economy  than  that  restrictions  on  im- 
portation of  corn  in  an  importing  country  have  a tendency  to  lower 
profits. — Letters  of  Ricardo  to  Malthus  (Bonar’s  edition),  No.  XV. 

I have  been  endeavoring  to  get  you  to  admit  that  the  profits  on 


13 


stock  employed  in  manufactures  and  commerce  are  seldom  perma- 
nently lowered  or  raised  by  any  other  cause  than  by  the  cheapness 
or  dearness  of  necessities,  or  of  those  objects  on  which  the  wages  of 
labor  are  expended.  Accumulation  of  capital  has  a tendency  to 
lower  profits.  Why?  Because  every  accumulation  is  attended  with 
increased  difficulty  in  obtaining  food,  unless  it  is  accompanied  with 
improvements  in  agriculture,  in  which  case  it  has  no  tendency  to 
diminish  profits. — Ibid.,  No.  XXI. 

I have  now  read  with  great  attention  your  essay  on  the  rise  and 
progress  of  rent.  ...  I cannot,  however,  help  regretting  that  you  did 
not  consider  separately  the  relations  of  rent  with  the  profits  of  stock 
and  the  wages  of  labor.  By  treating  of  the  joint  effect  of  the  two 
latter  on  rent,  you  have,  I think,  not  made  the  subject  so  clear  as  it 
might  have  been  made.  ...  I think,  too,  that  rents  are  in  no  case  a 
creation  of  wealth : they  are  always  a part  of  the  wealth  already 
created,  and  are  enjoyed  necessarily,  but  not  on  that  account  less 
beneficially  to  public  interest,  at  the  expense  of  the  profits  of  stock. 
Ibid.,  No.  XXIII. 

The  first  two  of  these  extracts  were  written  before  the 
appearance  of  Malthus’s  essay  on  rent,  and  the  third  is 
from  the  letter  acknowledging  its  receipt.  They  show 
how  clearly  and  definitely  Ricardo  had  worked  out  his 
fundamental  ideas  before  he  heard  of  the  theory  of  rent. 
The  relation  of  the  price  of  food  to  the  rate  of  profits  is 
the  central  thought  of  his  early  as  well  as  of  his  later 
writings,  and  the  charm  of  his  reasoning  is  mainly  due  to 
the  able  manner  in  which  he  groups  so  many  other  ideas 
around  this  one  thought.  In  this  way  that  crude  and 
incongruous  concept  of  the  industrial  world  upon  which 
Smith  and  Malthus  based  their  theory  of  prosperity  was 
displaced  by  Ricardo  by  another  concept  more  in  harmony 
with  the  phenomena  of  his  own  time. 

Viewing  Ricardo’s  Principles  of  Political  Economy  in 
the  light  of  these  facts,  it  is  not  difficult  to  divide  the 
book  into  parts  which  will  show  the  periods  in  the  devel- 
opment of  his  system  of  thought.  It  was  either  partly 
written  before  the  essay  of  Malthus  on  rent  appeared,  or 
the  specific  and  isolated  manner  in  which  Ricardo  was 


14 


accustomed  to  study  the  several  economic  problems  in 
which  he  was  interested  prevented  him  from  uniting  them 
into  an  organic  whole  and  restating  his  proof  in  harmony 
with  the  new  conditions.  He  does  not  co-ordinate  rent 
with  profits  and  wages,  thus  consciously  breaking  the 
ground  for  a theory  of  distribution.  He  remains  satisfied 
when  he  has  shown  that  the  theory  of  rent  does  not  affect 
his  theory  of  value,  because  rent  is  not  a part  of  the  cost 
of  production  of  commodities.  Profits  are  still  made  to 
depend  upon  wages,  rent  being  recognized  only  in  an 
indirect  manner.  He  thus  left  for  later  writers  that 
transformation  of  political  economy  into  a theory  of  dis- 
tribution which  shows  itself  plainly  in  J.  S.  Mill,  but  most 
completely  in  F.  A.  Walker. 

The  early  form  of  Ricardo’s  thinking  is  shown  in  his 
discussion  of  value  and  prosperity  (riches).  The  follow- 
ing chapters  contain  the  nucleus  of  this  economic  system 
before  it  was  modified  by  contact  with  contemporary 
economists:  XXVI.,  “On  Gross  and  Net  Revenue.” 

XX. ,  “Value  and  Riches,  their  Distinctive  Properties.” 
XXVIII.,  “ On  the  Comparative  Value  of  Gold,  Corn,  and 
Labor,  in  Rich  and  Poor  Countries.”  I.,  “On  Value.” 
IV.,  “On  Natural  and  Market  Price.”  V.,  “On  Wages.” 

XXI. ,  “ Effects  of  Accumulation  on  Profits  and  Interest.” 
The  order  is  not  that  in  which  they  were  written  or  that 
in  which  they  appear  in  his  book.  In  writing  he  seems  to 
have  started  from  the  point  of  greatest  present  interest, 
and  afterwards  to  have  added  chapters  as  they  occurred 
to  him  or  as  they  were  suggested  by  current  economic 
discussion.  In  this  way  some  of  the  topics  to  which  his 
attention  was  at  first  directed  come  late  in  the  book.  The 
chapter  on  Profits  (VI.)  logically  belongs  to  this  group, 
but  he  has  evidently  revised  the  argument  of  the  first  part 
of  it  to  make  it  conform  to  the  new  theory  of  rent.  His 
earlier  views  on  profits  are  better  stated  in  the  chapter  on 
the  Accumulation  of  Profits. 


15 

In  these  chapters  he  shows  clearly  the  influence  of 
Adam  Smith.  The  writings  of  the  latter  are  the  starting- 
point  for  the  discussion  of  each  specific  point,  and  then 
Ricardo  proceeds  to  develop  his  own  ideas  by  a contrast 
between  his  position  and  that  of  Smith. 

The  second  period  includes  the  parts  relating  to  money 
and  foreign  trade.  In  these  discussions  Ricardo  reasons 
from  original  investigations  based  upon  facts  within  his 
own  experience  and  observation.  Here  is  the  pure  Ri- 
cardo. The  familiar  facts  of  trade  and  commerce  are 
isolated  from  other  industrial  phenomena,  and  treated  as 
though  they  formed  a complete  industrial  world  of  their 
own.  They  are,  however,  specific,  concrete,  and  pictorial, 
presenting  a picture  of  the  world  as  seen  from  the  books 
of  a merchant  or  banker.  Bold  deductions  are  made  from 
these  specific  cases  which  were  happy  in  their  results  be- 
cause the  whole  industrial  world  was  then  moving  along 
lines  where  bankers  and  traders  had  gone  before. 

The  third  period  in  Ricardo’s  thinking  resulted  from 
the  discovery  of  the  theory  of  rent  by  Mai  thus.  Under 
its  influence  he  changed  the  character  of  his  law  of  the 
relation  of  profits  to  the  price  of  food  from  a particular  to 
a general  law,  and  revised  his  discussion  of  profits  by  bas- 
ing his  argument  on  the  law  of  rent.  (See  his  chapter  on 
Profits.)  This  change  in  the  argument  for  his  funda- 
mental propositions  naturally  turned  Ricardo’s  attention 
away  from  the  theory  of  prosperity  to  the  problems  of 
distribution.  The  chapter  on  Profits  was,  I think,  the  last 
chapter  that  he  thought  out  (in  its  present  form)  ; and 
there  he  has  partially  shifted  his  point  of  view  from  pros- 
perity to  distribution.  His  Preface,  however,  was  last  of 
all  to  be  written  ; and  in  it  he  has  finally  become  conscious 
of  the  importance  of  distribution,  and  declares  it  to  be 
“ the  principal  problem  of  political  economy.” 

This  Preface  is  of  peculiar  importance  as  an  illustration 
of  the  specific  way  in  which  Ricardo  reasoned  and  of  the 


16 


difficulty  he  had  in  breaking  away  from  the  concrete  form 
in  which  he  first  thought  of  individual  problems,  and 
shows  the  effort  required  for  him  to  see  a general  truth 
instead  of  concrete  particular  laws.  Nowhere  throughout 
his  whole  book  does  he  treat  rent>,.  profits,  and  wages  as 
co-ordinate  factors  in  distribution,  after  the  manner  in  his 
Preface.  He  often  contrasts  profits  and  wages,  or  profits 
and  rent,  but  never  rent  and  wages.  If  he  had  broken 
away  from  his  concrete  thinking  enough  to  contrast  wages 
and  rent,  he  would  have  forestalled  Henry  George,  since 
the  latter  writer  has  nothing  new  of  theoretical  impor- 
tance except  this  contrast  neglected  by  Ricardo  and  his 
followers. 

The  cause  of  the  concrete  way  in  which  Ricardo  looked 
at  economic  problems  is  easily  explained,  when  we  have 
the  key  to  the  development  of  his  thinking.  In. discuss- 
ing value  as  a static  problem,  he  always  contrasts  profits 
with  wages,  because  wages  are  costs  of  production,  and 
profits  are  its  surplus.  When,  however,  he  was  discussing 
the  distribution  of  the  surplus  (net  produce),  he  always 
contrasts  profits  with  rent.  The  latter  grows  at  the  ex- 
pense of  the  former,  whenever  the  increase  of  population 
due  to  social  progress  raises  the  price  of  food.  We  have 
in  his  book  these  two  concrete  doctrines  stated  in  an  end- 
less variety  of  forms ; but  nowhere  except  in  the  Preface 
does  he  generalize  enough  to  see  the  co-ordinate  relations 
of  rent,  profits,  and  wages  in  the  theory  of  distribution. 

It  may  seem  strange  to  assume  that  the  Preface  was 
written  after  the  rest  of  the  work.  Books,  however,  are 
written  on  two  plans.  Systematic  writers  think  out  their 
whole  scheme  before  beginning  to  write,  and  their  pref- 
aces reflect  the  contents  of  the  books.  Unsystematic 
writers,  like  Ricardo,  begin  without  any  clearly  perceived 
plan,  write  section  after  section  in  a haphazard  manner, 
frequently  changing  the  order  of  the  sections  in  the 
book.  There  is  therefore  no  clew  to  the  order  in  which 


IT 


the  chapters  of  such  a book  were  actually  written  except 
internal  evidence.  The  first  may  be  last,  and  the  last  first, 
or  first  and  last  both  may  be  in  the  middle  of  the  book. 
When  a writer  of  this  class  has  finished  his  book,  he  writes 
his  preface.  It  is  not,  however,  an  introduction  to  the 
book,  but  an  appendix  to  the  last  chapter  he  wrote,  with 
perhaps  a few  odds  and  ends  for  which  he  found  no  other 
fitting  place.  With  Ricardo  his  Preface  is  an  appendix  to 
his  chapter  on  Profits,  where  he  finished  his  writing,  and 
in  which  he  dimly  saw  the  theory  of  distribution  which 
became  so  important  in  the  subsequent  development  of 
the  science. 

From  internal  evidence  I am  inclined  to  believe  that 
James  Mill  wrote  or  at  least  inspired  the  first  three  para- 
graphs of  the  Preface.  They  have  his  tone  and  style, 
and  not  Ricardo’s.  As  I have  said,  Ricardo  never  co- 
ordinates rent,  profit,  and  wages.  Mill  does  this  con- 
sciously from  the  start.  Ricardo  never  classes  machinery 
with  labor  and  capital.  His  capital  is  primarily  food,  and 
thus  he  contrasts  labor  with  the  sustenance  of  labor.  Mill, 
however,  regards  capital  primarily  as  tools  or  instruments, 
increasing  the  productive  power  of  men.  He  would, 
therefore,  naturally  make  a threefold  division, — labor,  the 
material  aids  to  production,  and  sustenance. 

The  fourth  and  subsequent  paragraphs  of  the  Preface 
have  a true  Ricardian  ring,  and  were  doubtless  at  one 
time  the  whole  of  the  Preface.  They  are  specific  and 
definite  statements  of  facts,  beginning  with  a reference  to 
the  discovery  of  the  true  doctrine  of  rent  by  Malthus  and 
West.  His  modest  appreciation  of  his  own  abilities  shows 
itself  plainly  in  the  fifth  paragraph,  and  his  characteris- 
tic appreciation  of  Adam  Smith  and  Say  in  the  two  last 
paragraphs.  In  this  part  of  the  Preface,  according  to 
j Ricardo’s  usual  method  of  treatment,  wages  and  profits 
are  regarded  as  the  ultimate  shares  in  distribution;  while, 
as  a whole,  they  are  contrasted  with  rent  which  grows  at 


18 


their  expense.  To  write  such  sentences  as  these  was  nat- 
ural to  Ricardo,  and  he  needed  no  aid  in  their  construc- 
tion. But  the  first  three  are  of  a different  character. 
They  must  have  been  inspired  by  some  one  else  or  written 
at  a later  period  than  the  rest  of  the  Preface,  and  thus 
marked  a transition  in  the  thinking  of  their  author  from 
the  theory  of  prosperity  to  that  of  distribution. 

It  is  also  a mistake  to  assume  that  Ricardo  generalized 
sufficiently  upon  the  data  which  the  law  of  rent  gives 
to  make  the  cost  of  production  the  cost  of  that  portion 
of  a commodity  produced  under  the  most  unfavorable  cir- 
cumstances. He  did  indeed  get  glimpses  of  this  law  in 
concrete  cases,  but  he  failed  to  grasp  those  features  of  the 
modern  industrial  world  upon  which  F.  A.  Walker  has 
recently  based  his  law  of  profits.  Professor  Gonner,  how- 
ever, is  of  another  opinion,  and  says  that  Ricardo  states 
this  law  with  the  utmost  lucidity.*  He  quotes  the  follow- 
ing passage  in  support  of  his  position  : — 

The  exchangeable  value  of  all  commodities,  whether  they  be  man- 
ufactured or  the  produce  of  the  mines,  or  the  produce  of  land,  is 
always  regulated,  not  by  the  less  quantity  of  labor  that  will  suffice  for 
their  production  under  circumstances  highly  favorable,  and  exclu- 
sively enjoyed  by  those  who  have  peculiar  advantages  of  production, 
but  by  the  greater  quantity  of  labor  necessarily  bestowed  on  their 
production  by  those  who  have  no  such  facilities,  by  those  who  con- 
tinue to  produce  them  under  the  most  unfavorable  circumstances, 
meaning  by  the  most  unfavorable  circumstances  the  most  unfavor- 
able under  which  the  quantity  of  produce  required  renders  it  neces- 
sary to  carry  on  production.—  Ricardo's  Political  Economy  (Gonner’s 
edition),  p.  50. 

So  far  as  words  go,  this  passage  seems  explicit  enough  ; ' 
but,  when  we  seek  to  find  what  Ricardo  means,  it  is  easy 
to  show  that  he  did  not  use  these  words  in  their  present 
significance.  The  next  sentence  shows  how  limited  were 
his  ideas  of  the  principle  involved. 

* Ricardo’s  Political  Economy  (Gonner’s  edition,  introductory  essay) 
p.  xxxiii. 


19 


“ Thus,”  he  continues,  “ in  a charitable  institution,  where  the 
poor  are  set  to  work  with  the  funds  of  benefactors,  the  general  prices 
will  not  be  governed  by  the  peculiar  facilities  afforded  to  these  work- 
men, but  by  the  common,  usual,  and  natural  difficulties  which  every 
other  manufacturer  will  have  to  encounter.” 

It  is  evident  from  this  sentence  that  Ricardo  did  not 
mean  that  the  producers  of  commodities  had  different 
natural  obstacles  to  overcome,  or  that  they  differed  among 
themselves  in  the  power  to  organize  labor  and  capital 
efficiently.  He  had  in  mind  only  the  artificial  advantages 
which  some  producers  have,  because  of  governmental  aid 
or  restrictions,  or  because  production  is  carried  on  from 
other  motives  than  gain.  The  average  producer,  having 
the  “ common,  usual,  and  natural  difficulties  ” to  overcome, 
fixes  the  cost  of  production ; and  the  few  producers  who 
are  exempt  from  some  of  these  conditions  do  not  fix  the 
price  of  a commodity,  unless  they  are  numerous  enough  to 
supply  all  who  want  the  article.  This  statement  harmon- 
izes fully  with  Ricardo’s  conception  of  the  causes  deter- 
mining value.  Eliminate  every  artificial  condition,  and 
all  producers  will  have  the  same  difficulties  to  surmount, 
and  will  have  the  same  cost  of  production.  Costs  lie  in 
relations  of  men  to  nature ; and,  these  relations  being  ob- 
jective, all  producers  are  on  equal  footing. 

The  more  recent  conception  of  marginal  cost  assumes  a 
graded  scale  of  intelligence  among  producers,  by  which 
their  industrial  positions  are  determined.  The  produc- 
tive power  of  a group  of  producers  depends  not  wholly  on 
the  natural  obstacles  they  must  encounter,  but  also  on  the 
skill  of  the  individual  workmen  and  on  the  management, 
enterprise,  and  organizing  power  of  their  employers. 

These  facts  were  not  appreciated  by  Ricardo,  so  that  his 
application  of  the  law  of  marginal  cost  was  limited  to  a 
few  unimportant  cases,  arising  from  government  interfer- 
ence or  from  production  carried  on  for  charitable  pur- 
poses. The  law  thus  remained  in  an  imperfect  form  until 


20 


later  writers  saw  that  the  subjective  differences  in  men 
were  as  important  as  the  objective  differences  in  land.  It 
then  became  possible  to  break  down  the  concrete  barriers 
that  separated  the  law  of  rent  from  that  of  profits,  and  to 
view  them  as  species  of  a more  general  law. 

Viewed  from  a purely  theoretical  standpoint,  Ricardo’s 
theory  of  taxation  is  the  most  defective  portion  of  his  book. 
The  concrete  way  in  which  he  handles  each  specific  tax 
prevents  him  from  seeing  general  principles  or  even  from 
reaching  any  general  classification  of  taxes.  The  same 
form  of  taxation  is  treated  in  different  ways  under  differ- 
ent names.  The  discussion  in  one  case  seldom  tallies  with 
what  he  says  in  another,  and  in  some  instances  the  differ- 
ent parts  of  the  same  chapter  do  not  harmonize.  Taxes 
on' rent  are  discussed  under  three  different  titles,  and  a 
tax  on  raw  produce  in  at  least  four  ways.  He  fails  to 
reach  any  general  law  of  the  incidence  of  taxation,  because 
he  does  not  break  away  from  the  concrete  conditions 
under  which  he  studies  each  form  of  English  taxation. 

In  many  respects  his  discussion  of  taxation  reminds  me 
of  Adam  Smith’s  discussion  of  rent.  At  times  he  seems 
to  see  the  underlying  law  of  the  incidence  of  taxation,  and 
to  state  it  clearly,  only,  however,  soon  to  lose  sight  of  it 
altogether,  and  to  fall  back  into  that  hopeless  confusion  of 
ideas  and  principles  which  characterizes  the  popular  opin- 
ion on  all  subjects  to  which  the  methods  of  scientific  in- 
vestigation have  not  yet  been  extended.  In  taxation  he 
lacked  a Malthus  to  stir  him  up  to  his  best  thinking,  and 
to  help  him  break  away  from  his  concrete  method  of  in- 
vestigation and  reasoning.  He  thus  left  the  theory  of 
taxation  in  that  imperfect  form  in  which  his  theory  of 
profits  would  probably  have  been  left  but  for  his  contact 
with  Malthus,  or  that  in  which  Malthus’s  theory  of  rent 
would  have  been  left  but  for  Ricardo. 

As  was  the  case  in  most  of  Ricardo’s  reasoning,  his 


21 


starting-point  in  taxation  was  taken  from  Adam  Smith. 
The  theory  of  the  latter  is  that  the  burden  of  taxation 
usually  falls  on  the  consumer.  A sum  equal  to  the 
amount  of  taxation  was  added  to  the  price  of  commodi- 
ties upon  which  the  taxes  were  levied.  The  effect  of  tax- 
ation is  to  raise  the  general  level  of  prices,  just  as  an 
improvement  in  production  lowers  the  level  of  prices. 
Consumers  get  the  benefit  of  industrial  progress,  and  have 
to  bear  the  burden  of  taxation. 

Ricardo  rejected  Smith’s  theory  of  the  fall  in  prices 
through  competition,  and  should  therefore  have  rejected 
the  related  theory  that  consumers  bear  the  burden  of  taxa- 
tion. He  saw  that  a general  rise  of  prices  was  absurd 
unless  the  value  of  money  changed,  and  should  have  seen 
that  taxation  cannot  fall  on  consumers,  for  it  cannot 
change  the  level  of  prices.  That  producers  pay  all  taxes 
is  as  logical  an  outcome  of  his  theory  of  value  as  it  was 
for  Adam  Smith  to  say  that  consumers  pay  all  taxes.  If 
the  level  of  prices  cannot  be  changed,  taxation  must  cut 
in  on  the  difference  between  the  cost  of  production  and 
the  value  of  commodities ; that  is,  it  must  reduce  rent  or 
profits,  the  two  forms  of  producer’s  surplus  which  Ricardo 
recognized. 

Ricardo,  however,  failed  to  take  the  bold  stand  in  taxa- 
tion which  he  took  in  the  discussion  of  profits.  In  the 
theory  of  taxation  he  often  loses  sight  of  his  great  theorem 
that  values  cannot  rise  or  fall,  and  drops  his  discussion  of 
many  taxes  when  he  has  traced  the  effects  as  far  as  the 
consumer,  even  where  his  conclusion  does  not  tally  with 
the  general  principles  to  which  he  is  elsewhere  so  fond  of 
appealing.  A few  quotations  will  help  to  show  defects  of 
his  theory  of  taxation : — 

(1)  A tax  on  the  produce  of  land  . . . would  raise  the  price  of  raw 
produce  by  a sum  equal  to  the  tax,  and  would  therefore  fall  on  each 
consumer  in  proportion  to  his  consumption. — Political  Economy  (Gon- 
ner’s  edition),  p.  141. 


22 


(2)  The  probable  effect  of  a tax  on  raw  produce  would  be  to  raise 
the  price  of  raw  produce  and  of  all  commodities  in  which  raw  produce 
entered,  but  not  in  any  degree  proportioned  to  the  tax;  while  other 
commodities  in  which  no  raw  produce  entered,  such  as  articles  made 
of  the  metals  and  the  earths,  would  fall  in  price,  so  that  the  same 
quantity  of  money  as  before  would  be  adequate  to  the  whole  circula- 
tion (p.  151). 

(3)  Tithes  are  a tax  on  the  gross  produce  of  land,  and,  like  taxes  on 
raw  produce,  fall  wholly  on  the  consumer  (p.  157). 

(4)  As  taxes  on  raw  produce,  tithes,  taxes  on  wages,  and  on  the 
necessaries  of  the  laborer,  will,  by  raising  wages,  lower  profits,  they 
will  all,  though  not  to  an  equal  degree,  be  attended  with  the  same 
effects.  The  discovery  of  machinery  which  materially  improves 
home  manufactures  always  tends  to  raise  the  relative  value  of  money, 
and  therefore  to  encourage  its  importation.  All  taxation,  all  in- 
creased impediments,  either  to  the  manufacturer  or  the  grower  of 
commodities,  tend,  on  the  contrary,  to  lower  the  relative  value  of 
money,  and  therefore  to  encourage  its  exportation  (p.  196). 

(5)  We  have  seen  that  taxes  on  raw  produce,  and  on  the  profits 
of  the  farmer,  will  fall  on  the  consumer  of  raw  produce.  ...  I have 
also  attempted  to  show  that,  if  the  tax  were  general,  and  affected 
equally  all  profits,  whether  manufacturing  or  agricultural,  it  would 
not  operate  either  on  the  price  of  goods  or  raw  produce,  but  would  be 
immediately  as  well  as  ultimately  paid  by  the  producers  (p.  242). 

(6)  In  the  same  manner  a tax  on  the  profits  of  the  farmer  would 
raise  the  price  of  corn  ; a tax  on  the  profits  of  the  clothier,  the  price 
of  cloth  ; and,  if  a tax  in  proportion  to  profits  were  laid  on  all  trades, 
every  commodity  would  be  raised  in  price.  But,  if  the  mine  which 
supplied  us  with  the  standard  of  our  money  were  in  this  country  and 
the  profits  of  the  miner  were  also  taxed,  the  price  of  no  commodity 
would  rise,  each  man  would  give  an  equal  proportion  of  his  income, 
and  everything  would  be  as  before  (p.  187). 

These  passages  will  show  in  what  an  unequal  degree 
Ricardo  made  use  of  his  general  principles  in  the  discus- 
sion of  different  taxes,  and  why  he  failed  to  reach  any 
positive  theory  of  the  incidence  of  taxation.  His  concrete 
way  of  viewing  each  tax  prevented  him  from  applying  to 
each  new  tax  he  studied  the  results  of  other  investiga- 
tions. On  the  fundamental  question  whether  the  con- 
sumer or  producer  pays  the  tax  he  takes  an  endless 


28 


variety  of  positions,  regardless  of  the  demands  of  his  the- 
ory of  value.  He  claims  in  the  sixth  quotation  that  a tax 
on  the  profits  of  all  trades  would  raise  the  price  of  all 
commodities,  and  hence  be  paid  by  consumers,  but  that, 
if  the  profits  of  the  miner  from  whose  mine  the  money 
came  were  taxed,  the  price  of  no  commodity  would  rise, 
and  the  producers  would  pay  all  the  taxes  out  of  their 
incomes.  So  small  a change  could  hardly  produce  so 
great  an  effect.  The  weakness  of  the  reasoning  is  due  to 
the  fact  that  certain  premises  which  should  have  been 
used  in  connection  with  each  individual  tax  are  neglected, 
and  are  considered  only  when  he  is  conscious  of  having  a 
money  problem  before  him.  Ricardo’s  reasoning  is  always 
most  perfect  when  he  handles  problems  of  money  and 
foreign  trade.  He  will  then  trace  the  ultimate  effects  of 
a cause  which  otherwise  he  would  drop  when  its  tempo- 
rary effects  were  explained. 

The  best  statement  of  the  logical  outcome  of  his  theory 
of  value  is  in  the  second  quotation.  Here  he  affirms  that 
a tax  will  not  raise  the  price  of  a commodity  to  the 
amount  of  the  tax,  and  that  other  commodities  not  taxed 
will  fall  in  price  enough  to  compensate  the  consumer  for 
the  higher  price  of  the  taxed  commodity.  The  consumer 
therefore  loses  nothing  by  the  tax,  and  it  falls  wholly  upon 
the  producers  as  a class,  although  not  necessarily  on  the 
producer  of  the  taxed  article. 

The  latter  part  of  the  fourth  quotation  explains  how 
this  compensation  for  taxation  is  secured  by  the  consumer. 
All  taxation  lowers  the  value  of  money,  and  encourages  its 
exportation.  The  equilibrium  is  restored  only  when  the 
untaxed  articles  have  fallen  below  their  first  price  enough 
to  compensate  the  consumer  for  the  somewhat  higher 
price  of  the  taxed  articles.  The  immediate  effect  of  tax- 
ation is  to  raise  prices ; but  it  has  no  ultimate  effect  on 
prices  because  changes  in  the  value  of  money  counteract 
the  effect  of  taxation  on  consumers.  (See  quotation 
No.  2.) 


24 


The  defects  of  Ricardo’s  theoretical  position  on  taxa- 
tion are  due  to  his  stopping  his  investigations  so  often 
when  the  temporary  effects  were  shown,  and  of  not 
always  bringing  in  his  general  principles  to  show  the 
ultimate  effects.  He  would  then  have  seen  that  all  taxes 
fall  on  producers.  If  his  theory  of  value  is  correct,  taxes 
merely  change  the  ratios  at  which  commodities  excharige 
(objective  values),  and  hence  cannot  raise  general  values 
or  affect  consumers.  They  will  gain  by  the  fall  of  one 
class  of  articles  what  they  lose  on  other  classes.  Taxes 
must  therefore  be  deducted  from  the  difference  between 
total  values  and  the  total  costs  of  production,  and  thus  be 
a burden  to  producers. 

I have  gone  into  the  details  of  Ricardo’s  theory  of  taxa- 
tion, not  to  show  its  defects,  but  to  point  out  the  way  he 
actually  reasoned  when  not  influenced  by  other  writers  of 
more  abstract  tendencies.  He  began  his  investigations 
with  phenomena  which  attracted  his  attention,  and  drew 
from  them  a picture  of  their  causes  in  the  specific  relation 
which  they  bore  to  one  another  in  each  particular  case. 
He  did  not  think  of  these  causes  as  abstract  principles 
isolated  from  one  another,  and  from  the  phenomena  in 
which  they  were  active.  He  was  slow  to  recognize  the 
unity  of  a principle  which  he  had  seen  in  two  or  more 
concrete  forms,  and  often  failed  to  apply  a line  of  reason- 
ing worked  out  in  one  group  of  circumstances  to  a new 
group  differing  somewhat  from  the  first  in  its  details.  He 
failed  to  generalize  in  his  discussion  of  taxation  as  much 
as  in  his  discussion  of  value  or  of  profits,  for  English 
taxation  assumed  so  many  concrete  forms  that  its  princi- 
ples were  obscured.  He  could  form  a picture  of  the 
mechanism  through  which  profits  or  values  rose  and  fell, 
but  not  of  the  more  complex  mechanism  of  taxation. 

Ricardo  was  not,  therefore,  the  abstract  reasoner  that 
we  have  been  led  to  suppose.  His  famous  propositions  are 
all  the  result  of  concrete  studies  of  English  conditions  in 


his  time.  In  his  reasoning  he  always  has  these  conditions 
before  him  as  a picture,  and  he  returns  to  them  for  the 
facts  and  premises  upon  which  any  new  conclusion  is 
based.  He  naturally  reasoned  from  the  particulars  of  a 
concrete  illustration  to  some  general  conclusion,  but  sel- 
dom reasons  from  generals  to  particulars  unless  prompted 
by  the  reasoning  of  some  other  economist,  as  was  the  case 
when  Malthus  developed  the  law  of  rent.  His  theories 
of  money,  of  profits,  of  value,  and  of  international  trade, 
are  all  disconnected  specific  studies.  Bold  generalizations 
are  drawn  directly  from  the  facts  of  some  concrete  prob- 
lem which  attracted  his  attention  in  his  immediate  envi- 
ronment. It  was  the  happy  selection  of  the  right  features 
of  English  industrial  life  for  study,  and  not  the  breadth 
of  his  studies,  that  made  his  theories  so  important,  and 
gave  him  his  fame  as  an  economist. 

The  misleading  estimation  of  Ricardo  as  a reasoner  has 
been  created  by  the  belief  that  the  theory  of  rent  lies  at 
the  basis  of  his  system,  and  that  his  other  theories  are  de- 
ductions from  the  laws  of  rent  and  diminishing  returns. 
This  supposition,  however,  is  not  a fact.  It  is  so  much 
easier  for  us  to  reach  his  conclusions  from  these  general 
laws  that  we  neglect  the  order  in  which  his  ideas  were  de- 
veloped. We  reverse  the  historical  order  of  the  develop- 
ment of  his  ideas  for  what  is  to  us  a more  natural  order, 
just  as  he  reversed  tlie  historical  order  in  which  land  was 
brought  into  cultivation  for  the  natural  order  in  which  we 
now  cultivate  it.  He  did  this,  however,  not  from  any  in- 
clination to  abstract  reasoning,  but  because  the  actual 
condition  of  English  industry  and  agriculture  was  so 
deeply  impressed  upon  his  concrete  picture  of  the  eco- 
nomic world.  He  never  thought  of  studying  the  genesis 
of  good  land  from  poor  land,  any  more  than  he  thought 
of  the  genesis  of  the  thrifty  capitalist  out  of  the  careless 
laborer.  He  took  the  elements  of  his  picture  as  they  were 


26 


in  his  day,  and  created  his  economic  world  out  of  their 
mutual  relations.  His  laws  were  therefore  particular  and 
concrete,  and  were  made  general  laws  only  by  his  disciples, 
who,  reasoning  in  a more  abstract  manner,  substituted 
new  proofs  for  many  of  his  conclusions. 

The  history  of  economic  theory  shows  that  its  progress 
has  been  due  to  four  types  of  thinking,  which  may  be 
called  the  abstract  deductive,  the  concrete  deductive,  the 
inductive,  and  the  geometrical  methods  of  reasoning.  In 
the  abstract  deductive  method  some  quality,  relation,  or 
difference  is  selected  which  belongs  to  many  classes  of 
phenomena,  and  from  its  presence  certain  deductions  are 
made  of  all  the  phenomena  which  have  this  common  qual- 
ity, relation,  or  difference.  The  reasoning  is  always  from 
the  abstract  and  general  to  the  particular  and  concrete. 
The  qualities  are  made  more  prominent  than  the  concrete 
wholes  from  which  they  are  taken.  Menger  is  a good  ex- 
ample of  an  abstract  deductive  thinker.  His  theories  of 
subjective  value,  marginal  utility,  and  complementary 
goods,  are  excellent  examples  of  this  class  of  deductions. 
There  are,  of  course,  many  examples  in  English  eco- 
nomics, as  Senior’s  theory  of  interest,  Malthus’s  statement 
of  the  law  of  rent,  and  Walker’s  theory  of  profits. 

In  the  concrete  deductive  method  there  is  no  analysis 
of  the  wholes  into  abstract  qualities.  The  units  are  of 
a concrete  world.  The  capitalist  is  that  concrete  person 
met  in  the  bank  or  the  office  of  the  merchant,  and  the 
laborer  is  the  man  in  the  factory  or  following  the  plough. 
The  men  of  a given  class  are  thought  of  not  as  having 
individual  peculiarities,  but  as  having  the  qualities  of  some 
typical  man  who  has  impressed  his  characteristics  deeply 
upon  the  thinker.  There  is  a gulf  between  the  laborer,  the 
capitalist,  and  the  landlord  which  keeps  them  from  being 
classed  by  any  common  or  varying  qualities.  Money  is 
money,  and  not  a species  of  goods ; land  is  wheat  land ; 
and  wages  are  food.  The  Englishman  is  an  Englishman ; 


27 


the  German,  a German ; the  Italian,  an  Italian ; and,  be- 
cause they  will  always  remain  with  their  national  charac- 
teristics, foreign  trade  is  sharply  distinguished  from  domes- 
tic trade,  where  all  the  individuals  of  a class  have  the 
same  qualities.  Economists  using  this  method  take  the 
concrete  pictures  they  have  formed  of  their  own  industrial 
environment  as  a basis  and  a starting-point.  They  thus 
reason  from  particulars  to  generals  by  boldly  assuming 
that  all  persons  are  the  same  as  the  concrete  individuals 
with  whom  they  are  familiar,  and  that  all  economic 
phenomena  remain  in  that  concrete  relation  to  one  an- 
other in  which  the  thinker  is  accustomed  to  picture  them. 

Ricardo  is  the  best  example  of  this  class  of  economists. 
He  never  analyzes  his  units  into  qualities,  so  as  to  trace 
the  development  of  one  form  of  phenomena  into  other 
related  forms.  In  spite  of  his  bold  generalizations  his 
thinking  must  be  called  concrete,  because  he  sees  his  laws 
only  in  a certain  group  of  relations,  and  often  fails  to 
recognize  a law,  if  some  part  of  a given  group  of  relations 
is  lacking.  His  “ economic  man  ” is  not  created  by  unit- 
ing a number  of  abstract  qualities  to  form  the  man,  but 
by  taking  as  a type  of  all  men  some  concrete  example 
which  was  impressed  upon  Ricardo’s  imagination. 

The  abstract  thinker  takes  several  isolated  qualities  or 
differences,  and  unites  them  in  a group  to  form  the  back- 
ground of  a given  theory.  The  concrete  thinker,  like 
Ricardo,  finds  the  background  of  his  theory  already 
formed  in  some  specific  case  in  his  own  environment,  and 
gets  his  theory  by  stripping  from  the  permanent  relations 
found  in  his  illustration  their  non-essential  details.  In 
this  skeleton  there  is  a strong  cohesion  of  the  relations 
and  qualities  of  which  it  is  made  up.  The  origin  of  this 
particular  group  of  relations  is  the  result  of  natural  cir- 
cumstance, and  not  the  result  of  an  arbitrary  hypothesis  of 
the  writer.  The  concrete  thinker  therefore  has  great  dif- 
ficulty in  breaking  them  up  into  their  parts,  unless  aided 
by  some  one  whose  reasoning  is  more  abstract. 


28 


This  concrete  method  of  thinking  must  also  be  sharply 
contrasted  with  inductive  reasoning.  In  any  true  induc- 
tion the  thinker  begins  with  specific  and  isolated  phenom- 
ena, and  by  skilful  selection  and  arrangement  he  is  able 
to  find  the  law  through  which  they  are  related.  True 
inductions  should  be  based  upon  the  widest  observation 
of  all  classes  of  phenomena  under  all  conditions  and  in  all 
regions.  They  have  little  value  if  derived  from  local 
experience,  and  none  at  all  if  drawn  from  the  mental 
pictures  which  an  economist  may  create  of  the  men,  ma- 
terial, and  goods  which  form  his  economic  world.  Com- 
pare, for  example,  the  inductive  way  in  which  J.  S.  Mill 
tries  to  prove  the  law  of  diminishing  returns  with  the  way 
in  which  Ricardo  looks  at  the  same  law. 

Of  the  economists  who  have  used  the  geometrical 
method  of  reasoning,  James  Mill  is  the  best  example.  He 
seldom  appeals  directly  to  experience,  but  bases  his  reason- 
ing on  “laws  of  arithmetic,”  “contradictions  of  terms,” 
and  on  “logical  absurdities.”  In  this  respect  his  state- 
ment of  the  law  of  profits  should  be  compared  with  that 
of  Ricardo.  The  latter,  when  speaking  of  the  relation  of 
profits  and  wages,  evidently  has  the  books  of  a merchant 
or  manufacturer  pictured  before  him.  Expenses  are 
wages  in  their  ultimate  analysis,  while  profits  are  the  dif- 
ference between  these  expenses  and  the  selling  price  of 
goods.  The  two  sides  of  the  ledger  are  concrete  facts. 
James  Mill,  however,  reasons  as  follows:  “When  any- 
thing is  to  be  divided  wholly  between  two  parties,  that 
which  regulates  the  share  of  the  one  regulates,  also,  it  is 
very  evident,  the  share  of  the  other;  for  whatever  is 
withheld  from  the  one  the  other  receives : whatever, 
therefore,  increases  the  share  of  the  one  diminishes  that  of 
the  other,  and  vice  versa ” (James  Mill,  Political  Economy , 
2d  ed.  p.  72).  Another  characteristic  argument  is  to 
be  found  on  page  99 : “ It  has  been  most  pertinently  and 
conclusively  remarked  by  Mr.  McCulloch  that  time  does 


29 


nothing.  How,  then,  can  it  create  value?  Time  is  a 
mere  abstract  term.  It  is  a word,  a sound.  And  it  is  the 
very  same  logical  absurdity  to  talk  of  an  abstract  unit 
measuring  value  and  of  time  creating  it.” 

Such  reasoning  evidently  has  little  in  common  with 
that  of  Ricardo.  It  shows  the  working  of  a mind  trained 
in  logical  analysis  and  abstract  deduction,  but  not  a mind 
familiar  with  the  concrete  facts  of  the  industrial  world. 
In  spite  of  this  disadvantage,  James  Mill  proved  of  great 
service  because  of  his  influence  in  revising  the  basis  of 
Ricardo’s  arguments.  The  later  economists  have  ac- 
cepted the  content  of  Ricardo’s  doctrines,  but  have  pre- 
ferred the  arguments  devised  by  James  Mill.  This 
combination  has  many  logical  advantages,  but  the  direct 
relation  in  which  Ricardo  stood  to  the  English  industrial 
world  was  lost  sight  of. 

I recognize  that  the  picture  of  Ricardo  drawn  in  this 
paper  will  seem  unwarranted  by  many  of  my  readers.  It 
must,  however,  be  borne  in  mind  that  most  economists 
have  acquired  their  ideas  of  Ricardo  and  his  doctrines 
mainly  through  the  writings  of  J.  S.  Mill ; and  it  is  as- 
sumed that  he  is  a good  exponent  of  Ricardo’s  views,  and 
that  he  received  his  political  economy  direct  from  Ricardo. 
Doubtless  Mill  as  a mere  boy  often  heard  Ricardo  talk  on 
political  economy,  but  it  is  fair  to  assume  that  the  mere 
statement  of  the  theories  impressed  itself  more  fully  upon 
his  memory  than  the  form  and  character  of  the  arguments. 
Therefore,  he  could  hardly  be  a competent  judge  on  the 
latter  points,  especially  as  he  had  peculiar  views  of  the 
logical  method  of  political  economy,  in  which  he  would 
naturally  assume  that  Ricardo  shared.  His  admiration  of 
Ricardo  was  too  intense  to  allow  him  to  think  of  Ricardo 
as  using  an  erroneous  method  of  reasoning.  Mill,  how- 
ever, shows  clearly  in  his  Autobiography  that  he  was  care- 
fully drilled  in  the  logic  of  political  economy  by  his  father. 
He  says,  further,  that  the  abstracts  of  these  lessons  were 


80 


used  by  his  father  as  the  basis  of  his  Political  Economy , 
published  shortly  afterwards.  It  is  thus  evident  that 
J.  S.  Mill  learned  the  doctrines  of  Ricardo  in  the  logical 
form  which  they  assumed  in  his  father’s  mind,  and  not  as 
they  were  thought  out  by  Ricardo.  These  facts  can  also 
be  clearly  shown  by  comparing  the  reasoning  of  Mill  in 
his  Political  Economy  with  that  of  his  father.  The  re- 
sults of  those  early  lessons  remained  firmly  impressed,  and 
it  is  seldom  that  the  form  of  a purely  Ricardian  doctrine 
departs  from  the  reasoning  of  James  Mill. 

It  would  be  foreign  to  the  plan  of  this  paper  to  compare 
the  writings  of  J.  S.  Mill  with  those  of  his  father.  The 
material  for  such  a study  is  so  accessible  that  any  reader 
can  do  it  for  himself.  But  it  should  be  kept  in  mind  that 
the  early  part  of  J.  S.  Mill’s  career  was  in  fields  outside  of 
political  economy.  The  first  epoch  of  his  mature  life  was 
occupied  mainly  by  the  agitation  which  preceded  the  Re- 
form Bill  of  1888.  During  the  second  epoch  he  was  fully 
occupied  with  his  logical  investigations.  When,  there- 
fore, he  finally  turned  his  attention  to  political  economy, 
a whole  generation  of  writers  on  political  economy  had  in- 
tervened between  Ricardo  and  himself.  They  had  mate- 
rially enlarged  the  content  of  the  science,  and  had  changed 
the  emphasis  from  problems  of  prosperity  to  those  of  dis- 
tribution and  value.  Mill  tacitly  accepts  the  results  of 
their  investigations  without  doing  them  justice  for  their 
services  to  the  science.  He  was,  perhaps,  unconscious  of 
the  influence  upon  himself  of  the  ideas  of  these  writers, 
and  of  the  logical  method  of  his  father.  He  thus  attrib- 
uted to  Ricardo  ideas  foreign  to  the  time  in  which  Ricardo 
lived,  and  a method  of  reasoning  out  of  harmony  with 
Ricardo’s  concept  of  the  industrial  world.  In  this  way 
Mill  was  unjust  both  to  Ricardo  and  to  the  economic 
writers  who  preceded  him.  At  the  same  time  he  gave 
an  interpretation  to  the  writings  of  Ricardo  which  has 
misled  subsequent  economists,  and  prevented  them  from 


81 

getting  a correct  idea  of  the  development  of  economic 
theory  during  the  first  half  of  this  century.  Only  through 
a fresh  study  of  Ricardo’s  writings  can  we  free  ourselves 
from  the  erroneous  impression  of  him  created  by  disciples 
who  were  too  willing  to  identify  his  ideas  with  theirs,  and 
thus  be  able  to  present  a solid  front  to  the  supposed 
enemies  of  sound  reasoning  and  correct  methods  of  in- 
vestigation. Happily,  deductive  economics  no  longer 
needs  the  united  support  of  particular  doctrines  to  im- 
press its  value  upon  the  public.  No  valid  reason  remains, 
therefore,  why  the  writings  of  each  theorist  should  not 
be  studied  in  an  historical  spirit,  and  the  influence  of 
each  of  these  writers  be  fully  appreciated  and  correctly 
interpreted. 

Simon  N.  Patten. 


University  of  Pennsylvania. 


